3 Checks Before Buying British American Tobacco p.l.c. (LON:BATS) For Its Upcoming Dividend

Investing in dividend stocks can be a lucrative strategy, especially in a market where yields are hard to come by. British American Tobacco p.l.c. (LON:BATS) is one such stock that has caught the eye of many investors due to its attractive dividend yield. However, before you jump in, there are three crucial checks you should perform to ensure that this investment aligns with your financial goals and risk tolerance.

Check 1: Dividend Payout Ratio and Sustainability

The dividend payout ratio is a critical metric that indicates the proportion of a company's earnings that are paid out as dividends. For British American Tobacco, the current dividend payout ratio for the months ended in December 2024 is 0.60. This means that the company is paying out 60% of its earnings as dividends.



Historically, British American Tobacco's dividend payout ratio has ranged from a minimum of 0.59 to a maximum of 0.77 over the past 10 years, with a median of 0.64. The current ratio of 0.60 is slightly below the historical median, indicating that the company is paying out a smaller proportion of its earnings as dividends compared to its past performance. This is a positive sign, as it suggests that the company has room to increase its dividends in the future or to weather any financial storms that may come its way.

In comparison to the industry, British American Tobacco's dividend payout ratio is ranked better than 52% of 25 companies in the Tobacco Products industry. The industry median for the dividend payout ratio is 0.78, which is higher than British American Tobacco's current ratio of 0.64. This suggests that British American Tobacco is more conservative in its dividend payout compared to its peers, which is a good sign for dividend sustainability.

Check 2: Dividend Yield and Growth

British American Tobacco's dividend yield is another key factor to consider. As of March 22, 2025, the dividend yield is 7.36%, which is significantly higher than the sector average of 2.475% for the Consumer Defensive sector. This high yield is driven by the company's consistent dividend payments and a relatively stable share price.



The dividend payout ratio, which measures the proportion of earnings paid out as dividends, is another critical factor. British American Tobacco's dividend payout ratio for the months ended in December 2024 was 0.60, indicating that the company pays out 60% of its earnings as dividends. This ratio is within the historical range of 0.59 to 0.77 over the past 10 years, suggesting a balanced approach to dividend distribution and reinvestment in the business.

Additionally, British American Tobacco's dividends per share have shown steady growth. For the months ended in December 2024, the dividends per share were $1.46. Over the past 12 months, the average dividends per share growth rate was 2.00% per year, and over the past 10 years, it was 4.90% per year. This consistent growth in dividends contributes to the high dividend yield.

Check 3: Industry and Market Comparison

Comparing British American Tobacco's dividend yield to other companies in the tobacco industry, it ranks better than 52% of 25 companies in the Tobacco Products industry. The industry median dividend payout ratio is 0.78, while British American Tobacco's is 0.64, indicating that the company is more conservative in its dividend payout compared to its peers. This conservative approach helps ensure the sustainability of dividend payments over the long term.

In summary, British American Tobacco's high dividend yield is driven by its consistent dividend payments, steady growth in dividends per share, and a balanced dividend payout ratio. This yield is competitive within the tobacco industry and significantly higher than the broader market average, making it an attractive option for income-focused investors. However, it is essential to perform these three checks before investing to ensure that the dividend is sustainable and aligns with your investment goals.